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The world’s most profitable energy company is being punished by investors who are concerned it’s also the biggest spendthrift.

OAO Gazprom (OGZD), Russia’s natural-gas export monopoly, will beat Exxon Mobil Corp. (XOM) to earn $37.9 billion in 2012, according to estimates compiled by Bloomberg. Yet its shares have fallen 18 percent this year as the state-run company uses its cash to finance the industry’s largest capital expenditure program, including an export terminal in the Far East and undersea pipelines to Europe, where demand is forecast to drop.

“Gazprom has a lot of spare capacity to transport its gas to Europe as is,” said Ivan Mazalov, who helps manage $4 billion at Prosperity Capital Management, including Gazprom shares. “If the project is too uncertain, it is better to return cash to shareholders instead of plowing it into capital expenditures. A lot of this expenditure is inefficient.”

Gazprom spent $53 billion on capital projects last year, more than PetroChina Co.’s $46 billion and $36.8 billion at Exxon, leaving just 7 percent of earnings to pay as dividends, the least of the world’s 10 largest energy companies. Investors are paying the tab for President Vladimir Putin’s political priorities, bypassing estranged Ukraine and developing Russia’s poorer regions, analysts at IFC Metropol and Sberbank CIB said.

South Stream

The Kremlin has backed a Gazprom-led venture to spend $21 billion building the South Stream pipeline to Europe even as Russia’s existing connections run at about 70 percent of their capacity. Europe’s gas consumption will drop 3.5 percent to 550 billion cubic meters in 2015 from 2010 levels before leveling off, according to International Energy Agency forecasts.

South Stream will benefit Gazprom because it cuts the amount paid to Ukraine in transit fees, Chief Executive Officer Alexey Miller said at a ceremony to mark the start of construction last week. Those fees will now stay with Gazprom, making the project profitable, he said.

At the other end of Russia, Putin in October blessed a $45 billion project to tap the remote Chayanda gas field in eastern Siberia. Gazprom will construct a 3,200-kilometer (2,000-mile) pipeline to the Pacific coast and build an LNG plant in the port of Vladivostok.

“There are indeed a lot of investments now, but we are creating new gas production centers and new transport corridors that will bear fruits in the future,” said Gazprom spokesman Sergei Kupriyanov.

Some analysts agreed that investment now makes sense to ensure market share for Russia gas in the years ahead.

“We think there will be growing support for gas demand over the long term, and Russia is investing in the right business model to pursue this,” Renaissance Capital analysts Brad Way and Artem Kvas said in a research note on Gazprom.

Investment Plan

Still, there’s an acknowledgment in Russia’s government that spending needs to be reined in. Gazprom, which owns Russia’s gas pipelines, will revise down investment plans for next year, deputy Economy Minister Andrei Klepach said on Dec. 10. The board will this month consider the 2013 investment plan, which will total $23 billion, according to a Gazprom official.

While spending may fall this year, Gazprom has a history of overshooting. Investment at its gas business overran targets by 25 percent this year and 56 percent in 2011 as it pushed ahead with projects.

Total spending, including the oil and power divisions, may drop to $35 billion this year, according to a Gazprom presentation to reporters on June 28. Capital expenditure in 2013 will probably remain at the same level as this year, Chief Financial Officer Andrei Kruglov said on Nov. 8.

Lowest Ratio

The forecasts haven’t reassured investors: Gazprom’s price- to-earnings ratio is the lowest among the world’s 300 biggest oil and gas producers by market value, according to Bloomberg data. The company paid just 7 percent of profit as dividends last year, based on international accounting standards. That compares with 23 percent at Exxon and 45 percent at PetroChina.

Gazprom and partners Eni SpA, BASF SE (BAS) and Electricite de France SA last week welded the first seam of South Stream, to mark the ceremonial start of construction near Anapa, southern Russia. Work on the offshore link, running under the Black Sea to central and southern Europe, won’t begin until 2014, after environmental permits are granted, Sebastian Sass, spokesman for the South Stream Transport BV venture, said Nov. 21.

Pipeline Capacity

Russia’s pipeline capacity to Europe totals 223 billion cubic meters a year, while exports may not exceed 140 billion cubic meters this year, according to Alexander Burgansky and Roman Odarich, analysts at Otkritie Capital in Moscow.

While Gazprom expects to fill one-third of South Stream’s planned capacity with gas for new supply contracts, the rest will be for European supplies previously delivered via Ukraine. The link is designed to carry as much as 63 billion cubic meters a year in 2019.

Eni and the other minority partners reserve the right to exit South Stream, the Italian company said after signing the venture’s final investment decision on the project Nov. 14.

Ukraine can transport as much as 140 billion cubic meters a year of Russian gas to customers in the European Union. The route faces growing competition from transit shipments across Belarus, where Gazprom gained full control of the pipeline last year, and the Nord Stream link under the Baltic Sea directly to Germany.

Nord Stream, which doubled capacity to 55 billion cubic meters a year in October, is now operating at about a quarter of its potential. Gazprom also ships fuel to Turkey through the Blue Stream pipeline, which has never run at full annual capacity. Putin said on Dec. 3 the link, in which Eni is also a partner, may be expanded to allow exports to other countries.

Growing Competition

Gazprom is facing growing competition in Europe from U.S. coal supplies, liquefied natural gas and renewables.

While the outlook for Asian demand is more optimistic, Gazprom is planning its Far East investments without announcing contracts with customers. More than a decade of talks with China on piped supplies have stalled over prices.

“Our estimates suggest that it could be another black hole for Gazprom’s minority investors,” Sberbank analysts Oleg Maximov, Alex Fak and Valery Nesterov said in a research note. “It seems hard to justify a project that would develop a completely new field in Yakutia — the middle of nowhere — ship it 3,200 kilometers across the Russian hinterland shadowing the border with China then liquefy it only to sell the bulk of it, let’s face it, to China.”

State’s Strategy

The state’s strategy has a cost. Gazprom, which holds a monopoly on gas exports and the world’s largest reserves, trades at about 3.2 times earnings, compared with 12 for PetroChina and 11.3 for Exxon.

Exxon Mobil surpassed Gazprom by profit in the first half of this year as the Russian producer gave European customers price discounts to maintain demand for its fuel, according to data compiled by Bloomberg.

“The joke in my office is that they’re going to build a pipeline to the moon,” said Michael O’Flynn, managing director of UFG Asset Management. There’s no telling when Gazprom will get over the hump on big ticket projects because they never end, he said.

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